June 20, 2011

Judge to Former White House Chief of Staff Sununu: 'When In Doubt, Write It Out'

John H. Sununu, who served as chief of staff to former President George H.W. Bush, lost his 13-year legal fight with Philippine Airlines today, learning the hard way that when it comes to business, even a seasoned politician can be too trusting.

Sununu, also the former governor of New Hampshire, and business partner Victor Frank Jr., the former U.S. director of the Asian Development Bank, had sued Philippine Airlines in 1998. The two claimed the airline unlawfully reneged on more than $500,000 in fees for helping the airline renegotiate its leases.

In
granting (PDF) Philippine Airlines summary judgment today, however, U.S. District Court Chief Judge Royce Lamberth found that Sununu and Frank’s case had a fatal flaw – they failed to specify the full terms of the business arrangement in writing.

Sununu and Frank “were accustomed to handshake deals in which personal relationships count for more than legal documents, so they made little effort to put their understandings with [Philippine Airlines] on paper,” Lamberth wrote. “When they ran into a client who didn’t play by the same rules, they paid the price.”

Lamberth finished his opinion with words of wisdom: “The lesson is one that should be taught in law and business schools across America: When in doubt, write it out.”

In the mid-1990s, Philippine Airlines began renegotiating its airplane leases with World Airways. When talks broke down, Philippine Airlines asked Sununu and Frank in 1997 if they would help facilitate negotiations, according to Lamberth.

Sununu and Frank claimed Philippine Airlines agreed to pay them a flat fee and four percent of whatever money the airline saved through the renegotiated leases.

After a few weeks of negotiations, Philippine Airlines finalized the leases with World Airways. When Sununu sent in a bill, however, the airline claimed he wasn't entitled to the four percent because the leases weren't exactly what it had asked for in its contract with Sununu and Frank.

The two accused the company of purposefully misrepresenting the severity of its disagreement with World Airways, and then agreeing to fee terms that the company knew it would never have to pay in full.

The airline denied any wrongdoing, claiming Sununu and Frank simply failed to meet the terms of the fee arrangement and were suing for money they hadn't earned.

Lamberth found that there was no evidence of fraud, since Sununu and Frank had access to information at the time that spelled out the extent of the dispute. On the question of the fee arrangement, Lamberth wrote that Sununu and Frank made the mistake of failing to clarify the terms in writing.

In dismissing the case, though, Lamberth warned Philippine Airlines not to take his ruling as support for their business practices.

“[Philippine Airlines] may have violated Sununu and Frank’s trust, but it did not violate the law,” he wrote.

Sununu and Frank were represented by Stephen Seeger of Washington’s Seeger Faughnan Mendicino, who could not immediately be reached this afternoon. Philippine Airlines was represented by Patton Boggs’ Michael Nardotti Jr., T. Michael Guiffre and Cordell Hull; they also did not immediately return requests for comment.